Simmons Oil Corp. v. Holly Corp.

• Decision Date: 28 April 1993
• Docket Number: No. 91-589,91-589
• Citation: 852 P.2d 523,258 Mont. 79
• Parties: SIMMONS OIL CORPORATION and Simmons Refining Corporation, Plaintiffs and Appellants, v. HOLLY CORPORATION; Navajo Refining Company; Navajo Northern, Inc.; Wells Fargo Bank, N.A., Defendants and Respondents.
• Court: Montana Supreme Court

Page 523

852 P.2d 523

258 Mont. 79

SIMMONS OIL CORPORATION and Simmons Refining Corporation Plaintiffs and Appellants, v. HOLLY CORPORATION; Navajo Refining Company; Navajo Northern, Inc.; Wells Fargo Bank, N.A. Defendants and Respondents.

No. 91-589.

Supreme Court of Montana.

Submitted Sept. 24, 1992.

Decided April 28, 1993.

H. Charles Stahmer, James Goetz, Goetz, Madden & Dunn, Bozeman, Charles J. Wisch, Weissburg and Aronson, Inc., San Francisco, CA, for plaintiffs and appellants.

Steven M. Perry, Munger, Tolles & Olson, Los Angeles, CA, John D. Stephenson, Jr., Jardine, Stephenson, Blewett & Weaver, Great Falls, for Wells Fargo Bank, N.A.

McDONOUGH, Justice.

This is an appeal from an order of the Eighth Judicial District, Cascade County, granting respondent's motion for summary judgment. We affirm in part and reverse in part.

Appellant Simmons Oil Corporation (SOC) and Simmons Refining Corporation (SRC) (collectively referred to as "Simmons") alleged claims against Wells Fargo Bank for breach of fiduciary duty, tortious breach of the implied covenant of good faith and fair dealing, and civil conspiracy with Holly Corporation, resulting in Holly's breach of partnership fiduciary duty owed to Simmons.

The central question on appeal is whether respondent established the complete absence of any genuine issues of material fact to justify a summary judgment ruling as a matter of law. Appellant requests this Court to reverse summary judgment on the grounds that the District Court erred in granting this ruling in light of the material factual controversy that exists.

ISSUES

1. Did the District Court err in granting summary judgment as to the claims brought against respondent Wells Fargo by appellant Simmons for breach of a fiduciary duty?

2. Did the District Court err in granting summary judgment as to the claims brought against Wells Fargo for breach of the implied covenant of good faith and fair dealing?

a. Did Wells Fargo merely exercise its contractual rights or did its actions constitute a breach of the covenant of good faith and fair dealing implied in every contract?

b. Did a "special relationship" exist between Simmons and Wells Fargo to support a tort claim for bad faith?

3. Did the District Court err in granting summary judgment as to the claims against Wells Fargo alleging civil conspiracy with Holly to breach Holly's fiduciary duty to Simmons?

On December 22, 1988, Simmons filed this action in District Court to recover damages from Wells Fargo Bank for breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, and conspiracy. Simmons also sued Holly Corporation and two of its wholly owned subsidiaries, Navajo Refining Corporation and Navajo Northern, Inc. (collectively "Holly"), on similar allegations. In February 1989, both Wells Fargo and Holly moved to dismiss for lack of personal jurisdiction and the court granted these motions on May 1, 1989. Simmons appealed this dismissal, and in July 1990 this Court reversed and remanded for further proceedings in a published opinion, Simmons Oil Corp. v. Holly Corp. (1990), 244 Mont. 75, 796 P.2d 189.

Upon remand to the District Court, Wells Fargo and Holly filed motions for summary judgment which were argued. On October 17, 1991, the District Court filed its orders granting summary judgment for all defendants, and Simmons appealed.

Prior to the filing of opening briefs, Simmons settled its dispute with Holly, and in February 1992, appellants and Holly filed in this Court a joint stipulation for voluntary dismissal of the appeal from the order granting summary judgment to Holly. The only remaining respondent is Wells Fargo.

Simmons' allegations against Wells Fargo focus on the occurrence and interpretation of certain events during the eight year period of the loan relationship. The following basic chronology is not disputed by the parties:

Beginning in 1980, Wells Fargo provided SOC a line of credit, which was increased to $18 million in 1981 when SOC's wholly owned subsidiary, SRC, purchased the Black Eagle Oil Refinery in Great Falls. The credit was to be used for working capital and acquisition of inventory and SOC and SRC ("Simmons") agreed the line of credit would be reduced to $10 million by May 1982.

Simmons began experiencing financial difficulties in early 1982, was unable to reduce the debt as agreed upon, and thereafter Wells Fargo closely monitored the refinery's operating performance. Although Wells Fargo held off exercising its undisputed foreclosure rights, throughout 1983 and 1984 the bank urged Simmons to initiate voluntary bankruptcy proceedings. During this time, Simmons attempted to sell assets and find equity partners or additional financing.

In 1984, Simmons, Wells Fargo, and Holly entered into an agreement which authorized the formation of Montana Refining Company (MRC), a partnership, to run the refinery. MRC assumed some of Simmons' debt and a Holly subsidiary, Navajo Northern, Inc., became the sole general partner and took control of the refinery. Simmons' subsidiary, SRC, the sole limited partner assumed a passive role in the refinery's operation.

The remaining Simmons debt was restructured in January 1985, and Simmons executed two new notes totalling approximately $12.6 million. Mutual general releases were executed between Wells Fargo and all of Simmons' entities, except SRC. This included releasing Mr. and Mrs. Simmons from their personal guarantees of the preexisting corporate debt. (Mr. Simmons is president of both SRC and SOC.)

Contacts between Wells Fargo and Simmons decreased substantially by late 1985, and Jerry Simmons had no conversations with any Wells Fargo officer or employee during the subsequent two years.

The 1985 restructuring agreement allowed an assignment by Wells Fargo of its rights and duties under the agreement. On April 25, 1988, after several years of unfavorable refinery operations and minimal debt service, Wells Fargo sold Simmons' and the MRC notes to Holly. This sale resulted from Holly's assertions that the sale of the notes was Holly's "stated price for continuing to support the refinery" and that it might tender its inventory to Wells Fargo and "walk away" if the sale was not forthcoming.

Simmons had been negotiating with Wells Fargo directly regarding a purchase of the notes, but negotiations had broken down earlier in the month and prior to culmination of the sale between Holly and Simmons then filed this suit alleging that Holly and Wells Fargo wrongfully refused to allow it to purchase the debt on the same terms given to Holly and that the sale constituted a breach of fiduciary duty and bad faith.

Wells Fargo, Wells Fargo rejected a proposal from Simmons for [258 Mont. 84] Simmons' purchase of the notes on exactly the same terms and conditions as offered to Holly.

While the foregoing chronology is not in contention, both parties, in their briefs, provide specific details surrounding these events which vary significantly. Simmons argues, and substantiates with documentation, that Wells Fargo exercised considerable control over the refinery's operation between 1982 and 1984; that it forced Simmons into the partnership with Holly on terms and conditions specified by the bank; that it secretly negotiated with Holly when it assigned the debt; and that it knew that Holly planned to use the debt to force Simmons out of the partnership and avoid Holly's partnership fiduciary duty to Simmons. Simmons' allegations of breach of duty and bad faith are premised on these purported facts.

Wells Fargo maintains that the control exercised over Simmons was an attempt to work with Simmons to regulate costs and seek additional funding sources rather than exercising foreclosure rights on the assets. Wells Fargo notes that Simmons was free to reject Wells Fargo's advice, and did, such as advice concerning filing for bankruptcy. Furthermore, Wells Fargo asserts that the sale constituted an exercise of an express and unrestricted contractual right; that Simmons was aware of Holly's negotiations to purchase the debt from Wells Fargo and chose not to contact the bank with an offer to purchase the debt until after a Holly/Wells Fargo letter of intent was signed; and finally, that since the assignment right was unrestricted, a covenant of good faith and fair dealing should not be implied to vary the express, unambiguous terms of the contract.

BREACH OF FIDUCIARY DUTY

In Montana, "[t]he relationship between a bank and its customer is generally described as that of debtor and creditor ... and as such does not give rise to fiduciary responsibilities." (Citation omitted.) Diest v. Wachholz (1984), 208 Mont. 207, 216, 678 P.2d 188, 193. However, in certain circumstances, a fiduciary duty may result from the development of a special relationship akin to an "advisor/advisee." This "special" relationship must exist before a fiduciary duty arises. Deist, 678 P.2d at 193.

Appellant contends that respondent had a fiduciary duty to Simmons because it exercised substantial control over the operations of the corporation, thus providing the special relationship necessary to create a fiduciary duty. Respondent counters that Simmons' rejection of the bank's advice and subsequent retention of independent legal counsel terminated any fiduciary relationship there may have been.

Also, respondent states that Wells Fargo made their decision to sell the Simmons' debts for "solid business reasons." Furthermore, Wells Fargo had a right to assign the notes per the 1985 Restructuring Agreement.

"This Court has recognized that no fiduciary duty arises between a bank and its borrower where the bank did not offer financial advice, its advice was not always heeded, or where the borrower was advised by others, such as legal counsel." Lachenmaier v. First Bank Systems, Inc. (1990), 246 Mont. 26, 33, 803 P.2d 614, 619. Although Wells Fargo exerted considerable control over the...